Off-payroll working refers to the situation where a worker/contractor provides their services via an intermediary, usually the worker’s own personal service company (PSC).

The off-payroll working rules, sometimes known as ‘IR35’, seek to ensure that if a worker would have been treated as an employee if they were providing services directly to their client(s), both the worker and their client(s) pay broadly the same tax and NICs as with employees.

Current rules

The off-payroll working rules for public sector clients were updated in April 2017. This means that the responsibility for deciding on a worker’s employment status in respect of each contract lies:

  • for public sector: with the client
  • for private sector: with the intermediary


Changes from 6 April 2021

With effect from 6 April 2021, the public sector approach will be extended to all ‘medium’ and ‘large’-sized private sector clients. These clients will become responsible for deciding on the employment status of their workers.

The rules remain unchanged for ‘small’ private sector clients, i.e., the intermediary remains responsible for deciding  on a worker’s employment status.

For companies and LLPs, size definitions follow from the Companies Act 2006. Only those satisfying two or more of the following (on a group basis, where appropriate) will be considered ’small’ and so exempt from the new rules:

  • No more than 50 employees
  • Annual revenues ≤ £10.2m
  • Balance sheet total ≤ £5.1m

For non-corporates, the new rules apply to those with annual revenues in excess of £10.2m.

Requirements of the new rules

Where the new rules apply, for every contract agreed with an agency or worker, clients will need to decide on the employment status of their workers. Alongside this, they must:

  • pass their determination to the worker (referred to as a Status Determination Statement, or SDS) and the contracting organisation, with reasons
  • maintain detailed records of decisions made
  • establish processes to deal with disagreements arising from an SDA

Income tax and NICs must then be deducted and paid to HMRC where applicable, based on employment status determinations.

Indicators of employment status

Determining the employment status of a worker can be a complex area, requiring a balanced assessment considering a range of factors. These include, among others:

  • Control and direction
  • Personal service/substitution
  • Mutuality of obligation


Making decisions on a worker’s status

HMRC provides a ‘Check Employment Status for Tax’ (CEST) service to assist with deciding on the employment status of workers. Provided that accurate information is entered, HMRC will stand by the results provided by the tool.

HMRC has confirmed that they will not use information resulting from these changes to open a new compliance check into PSCs for earlier tax years, unless there is reason to suspect fraud or criminal behaviour. In addition, penalties will not be charged for inaccuracies in the first 12 months relating to the off-payroll working rules, regardless of when the inaccuracies are identified, unless there’s evidence of deliberate non-compliance.